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How will COVID-19 affect Australia-China business relations?

May 9, 2020

Cautious optimism for Australia-China business relations after COVID-19

Four leading China experts agreed Australia’s commercial ties with China are likely to remain strong after the COVID-19 pandemic has passed, although they will remain intertwined to the sometimes fraught political and diplomatic relationship.

In a panel discussion hosted by the University of Sydney’s China Studies Centre, they also said the bilateral trade and investment relationship needed to broaden.

Australia-China business relations

China is Australia’s largest trading partner; two-way trade between the countries is worth $194.6 billion annually. The value of Australia-China relationship is more than twice that of our next largest trading partner, Japan.

“Firstly, how we play with the relationship and how we balance our diplomatic and economic needs. Secondly, China’s economic performance will affect our trade with China. China’s economy has been slowing down a little, but if China feels a lot of pressure from diplomatic and political perspective, it will eventually affect market sentiment and China’s economy,” Ms Cheng said.

“And finally, the global market. How are the trade war and the coronavirus affecting the global market? If the global market is not doing well, it will affect the manufacturing sector and consumption in China, and hence affect Australia’s mining resources and consumer goods export to China as well.

“In the short and medium term we will not find a trade partner as substantial as China.”

“From a commercial sense, through all the vicissitudes, our exports to China have just grown and grown but they are very narrowly based. Take iron ore out of the equation and they are even more narrowly based,” Dr Raby said.

“I don’t think travel restrictions will be lifted anytime soon and it could even lead into next year. So that’s going to have a very big impact because after iron ore and coal, education is our biggest export to China.”

“China and Australia are economically mutually dependent. China needs iron ore and food from Australia for recovery and rebuilding. Australia on the other hand needs exports,” Professor Hendrischke said.

Professor Hendrischke believes the Australian Government’s recent call to restore Australian manufacturing and onshoring of industrial capabilities was a step in the right direction.

“The way the Australian Government is going is quite positive. The idea of reassuring the Australian manufacturing capacity is something that could create more jobs,” Professor Hendrischke said.

“But this won’t bring the huge manufacturing industry. It will be in markets where we are competitive, that is largely around health, food, energy and infrastructure. The reason we are competitive in those markets is because we are dealing with China, we have built up capacity to supply the demand in China. Even if we move to stronger manufacturing, we will still have to work with China.

“We will have to reconsider Chinese investment. How do we get Chinese participation and cooperation in tailoring products for the Chinese market?”

I would expect Chinese imports of Australian supplies will pick up rather rapidly in the third quarter.

“It is sad Australians only talk about Chinese investment into Australia, I never hear people talking about Australian investment in China. If nothing else, by investing in China it gives you a more a direct feel about the changes in the Chinese market. It does not have to always be iron ore, you can find other niches.

“What better way to know about a country’s economy, to predict its future change, than by being on the ground?”

Nonetheless, Professor Zha believes the business relationship between the two countries will pick up later this year.

“When we have a recovery, Australia will be a reliable supplier of high-quality ore and other products like food. I think the actual impact of the coronavirus will be very minimal. I would expect Chinese imports of Australian supplies will pick up rather rapidly in the third quarter,” Professor Zha said.

Australia’s political relationship with China

In Australia you have a way higher level of attention of getting your relationship with China right, on our side Australia does not feature high on the priority list of political relationships.

Professor Daojiong Zha

Panelists were less optimistic when discussing Australia’s political relationship with China. All agreed there was significant room for improvement on this front.

Dr Raby was particularly critical in his assessment: “Our relationship with China has been at the lowest ebb it’s ever been since diplomatic relations were established in 1972. That is a big issue.”

Offering a Chinese perspective on the relationship, Professor Zha said, “the relationship historically has been very asymmetrical at the level of political attention.

“In Australia you have a way higher level of attention of getting your relationship with China right, on our side Australia does not feature high on the priority list of political relationships. Unfortunately, the media not just in Australia but here in China, get into an echo chamber effect of picking up on negativity towards each other.”

Professor Hendrischke believes students and international education were an important link for the two countries.

“The problem we are facing is a lack of connectivity. You can pack all the problems we have under there. We have connectivity in technical areas, like custom clearance, but we don’t have it in security areas, for example the Huawei debacle. The students are crucial as an asset in our connectivity. But we may not be able to overcome the travel restrictions,” Professor Hendrischke said.